New legislation has been introduced in the UK which contains some interesting developments in the area of directors’ remuneration for quoted companies.

The directors’ remuneration policy (including its policy on termination payments for directors) of such a company will require shareholder approval by ordinary resolution at least once every three years. This policy cannot then be departed from in respect of directors’ remuneration or payments on termination of office. If this is not adhered to and a payment in breach of that policy is made, the directors who approved the payment are jointly and individually liable to indemnify the company against any loss arising from the payment. The directors’ remuneration report must also set out a separate section on the company’s forward looking policy, the contents of which are to be stipulated by regulations which have not yet been published.  

While it applies only to UK incorporated quoted companies (being those companies listed on a regulated market in the EEA, NASDAQ or the NYSE but excluding AIM) the markets reaction to this will undoubtedly be carefully watched by EU policy makers who have been considering the whole area of shareholders having a “say on pay” for some time.